William Hsiao's single payer proposal for Vermont

Statement by William C. Hsiao

Vermont State LegislatureJanuary 19, 2011

Act 128 calls upon our team to develop three options. The Legislature requires that we evaluate a state government-administered and publicly-financed single-payer health benefits system. This system, which we refer to as Option 1, would provide all Vermonters with a uniform benefits package. Within those parameters, we looked at costs of both a “comprehensive” benefits package and a leaner, “essential” benefits package, which I will define and discuss later. The second option is a state government-administered, public option that would allow Vermonters to choose between public and private insurance coverage. Option 2 is designed to allow for and promote competition between the public and private plans, while keeping in place the current multiple payer system. Act 128 allows our team to develop a third option that we design after analyzing all aspects of Vermont’s health care and assessing the positions of key stakeholders across the State of Vermont. We call Option 3 a public/private single-payer system. It provides an “essential” benefits package, is administered by an independent board with diverse representation, and it employs a competitively-selected third party to manage provider relations and claims adjudication and processing.

In analyzing the three options, we determined that all will yield significant savings. However, our research and analysis indicate that the single-payer options will have a more dramatic impact on reducing cost than the public option because they incorporate a uniform benefits package and reduce much of the administrative structure needed to compensate multiple payers. Therefore, we estimate that Option 1 will produce savings of 24.3% of total health expenditure between 2015 and 2024. Option 2 will produce savings of 16.1% of total health expenditure between 2015 and 2024. Finally, Option 3 will produce savings of 25.3% of total health expenditure between 2015 and 2024. Option 3 produces additional savings as compared to Option 1 because it incorporates a public/private partnership in governance and administration.

In 2015, the first full year of implementation, PPACA would reduce the number of uninsured by 18,000 people; however 32,000 Vermont residents will remain uninsured. Ultimately in 2019, PPACA will reduce the number of uninsured by 22,000 in 2019. PPACA will likely add an additional $240 million of federal funds in 2015 to the State of Vermont, which will eventually rise to $420 million in 2019. All of these dollar values are expressed in 2010 dollars.

In comparison with option 1 and 3, Option 2 would still leave approximately 30,000 Vermonters uninsured. Option 2 would not expand the current benefits to cover some dental and vision care nor bring up the benefits for those who are currently under-insured.

The comprehensive benefit package under option 1 covers all health services with minimum cost sharing. As a result, it costs more and requires more funds to finance it. Under a payroll contribution scheme of financing, employers and workers will have to pay more than what they would pay if no reform takes place. This comprehensive benefit option would also increase the total health spending in Vermont which would make this option less feasible.

The essential benefit package under option 1 and 3 have leaner benefits and they can be financed through payroll contributions without increasing the amount that most employers and workers would have to pay as compared to if no reform takes place. It would reduce the total health spending in Vermont slightly in 2015 when the proposed reforms are implemented.

Comment:

By Don McCanne, MD

Although advocates of the pure single payer model will find some problems with this report on a reform proposal for Vermont, there is very good news in this analysis. The report emphatically confirms the superiority of the single payer model in ensuring that everyone is included while containing health care costs.

In an analysis of the impact of the Patient Protection and Affordable Care Act (PPACA), the authors demonstrated that far too many would still be left without insurance, and it would have a negligible impact in controlling health care costs. As we have said all along, the financing system in PPACA is grossly inadequate and needs to be replaced.

The authors' Option 2 is essentially PPACA with a "public option" added - a public insurance plan that competes with the private plans. Their analysis shows that it would have only a very modest impact on reducing costs, and an almost negligible impact on reducing the numbers of uninsured. Thus the bluster in support of the public option was misdirected. That energy should have been redirected to supporting single payer instead.

Options 1B and 3 are almost identical. They are both single payer models that totally replace the private insurance plans. They have an "Essential Benefits Package" with an actuarial value of about 87 percent which is close to the typical employer-sponsored plans before they began introducing high deductibles. Their analyses shows that these plans would cover everyone without any increase in spending since the single payer efficiencies would be enough to pay for those currently uninsured or under-insured. So this is the really good news - single payer works (though read on).

The primary difference in 1B and 3 is that 1B is publicly administered whereas 3 is administered by an independent board that contracts with a competitively-selected third party to manage provider relations and claims adjudication and processing. The authors state a preference for Option 3 claiming that it saves a little bit more money by requiring potential managers to compete for the contract. That is highly dubious and more likely was inserted to appease the market ideology of a sector of the twenty some odd contributors to this study. Considering this, I think that we can extrapolate the fact that the authors would also endorse Option 1B, since it is otherwise identical.

Option 1A is like 1B except that it provides a "Comprehensive Benefits Package" - virtually all health care services and products - achieving approximately an actuarial ratio of 97% for medical and mental health services, 90% for drugs and vision care, and 85% for dental, nursing homes and home care. It would cost more than Option 1B, but not that much more. It was not selected by the authors since one of the goals of study was to cover everyone without increasing spending over current levels. In a single payer system the benefits should be comprehensive.

One very serious deficiency is that they decided to leave in place Medicare and Medicaid, primarily because of existing barriers to move them into a single payer system. Thus their proposal is not a single payer system. Leaving these programs in place sacrifices some of the important single payer efficiencies.

They also tout accountable care organizations (ACO), suggesting that capitation should apply to primary care and salaries should apply to specialists. Yet by questions that they pose, they recognize that ACOs are not well defined. For instance, how can they effectively manage the care of a patient that PPACA grants the right to move in and out of the ACO at any and all times?

Within the next couple of days, we'll have a clearer concept of where the single payer community should be on this report. Tentatively, it seems that it deserves our support, but support that is qualified by strong advocacy to make it right by such measures as including comprehensive benefits, and rolling in and eliminating Medicare and Medicaid.